Al Root

GE Vernova has been a surprise winner in the GE breakup. Shares have raced far beyond analysts initial price targets. There are a couple of factors that can keep price targets -- and earnings estimates -- rising in the coming years though: capacity and pricing.

Tuesday, Baird analyst Ben Kallo published a "product spotlight" on GE Vernova's Aeroderivative Turbines. Vernova is a power generation technology company making turbines and windmills for electricity as well as electrification equipment for the grid. Turbines are the company's most profitable business.

Aeroderivative turbines are, as the name suggests, derived from aerospace turbines used to fly planes. GE Aerospace is the dominant producer of commercial jet engines. Roughly three-quarters of all commercial flights take off with either a GE Aerospace engine or an engine made by GE's 50/50 joint venture with Safran.

GE Aerosapce and GE Vernova split from one another in April 2024. Since the split GE Vernova stock has quintupled, a move that few saw coming. Wall Street's initial stock price targets for GE Vernova were in the $160 range, according to FactSet.

GE Vernova stock was just under $617, down 1.9%, in midday trading on Tuesday, while the S&P 500 and Dow Jones Industrial Average were off 0.1% and 0.2%, respectively. Now, Wall Street's average price target for GE Vernova is about $687.

Aeroderivative turbines are smaller options than GE Vernova's heavy duty turbines. The can produce about 35 megawatts to 115 megawatts of power. A heavy duty turbines can produce up almost 600 megawatts of power. Both typically burn natural gas.

(A well-utilized heavy duty turbine can generate enough electricity to power hundreds of thousands of homes a year.)

The price for an aeroderivative is about $1 million to $1.2 million per megawatt, wrote Kallo. The price for a heavy duty turbine is closer to $1.5 million per megawatt. "We see pricing for both [products] biased upward," he added.

Higher pricing is a source of upside for GE Vernova's earnings in coming years. Pricing is moving up because demand is moving because of the need for more electricity. BofA Securities estimates that U.S. electricity production will grow about 2.5% a year for the coming decade after growing at closer to 0.5% for the prior decade. That works out to hundreds of billions in needed grid investments.

To meet growing demand for electricity, GE Vernova plans to make more turbines. The company is expanding heavy duty turbine capacity to an annual 20,000 megawatts from 15,000 megawatts. "We expect the company to hit this run rate in mid-2026," added Kallo.

Higher pricing and more turbines keep Kallo bullish on shares. He rates GE Vernova stock Buy and has a $706 price target for shares.

To be sure, there are risks. Pricing might not turn out as favorable as hoped and the recent run up in GE Vernova stock has left shares trading for about 49 times estimated 2026 earnings. The S&P 500 trades for closer to 22 times.

Wall Street initial price targets valued GE Vernova stock at about 28 times next year's estimated earnings. Price targets today value the stock at about 55 times next year's estimated earnings.

Higher valuation multiples are a consequence of accelerating earnings growth. Now that growth just needs to materialize.

Write to Al Root at allen.root@dowjones.com

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September 16, 2025 16:07 ET (20:07 GMT)

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